Singapore’s Finance Minister Mr. Heng Swee Keat delivered his Budget speech yesterday, with some measures announced which will affect the SG property sector. The most significant change was the increase in the top marginal Buyer’s Stamp Duty (BSD) rate for residential properties from 3% to 4%. This would be applied only to the portion of the residential property value which is in excess of S$1m and has already come into effect today (20 Feb 2018). This means that there would be no change in BSD payable on residential properties costing S$1m and below.

Previously, the BSD was 1% for the first S$180k, 2% for the next S$180k and 3% for the remaining value of the residential property. We view this as a mild cooling measure aimed at enhancing progressivity. While there could be a negative knee-jerk reaction to the share prices of developers, we believe the incremental outlay is unlikely to severely dampen demand for the residential market. However, there would likely be a more significant impact on the collective sales market which is larger in ticket size.

The BSD rates for nonresidential properties remain unchanged at 1% to 3%. This is a positive for S-REITs as they typically buy commercial and industrial properties in Singapore.

Minister Heng also announced that the tax transparency treatment for S-REITs would be extended to S-REIT ETFs, such that there would be parity in tax treatments between investing in individual S-REITs and SREIT ETFs. This would take effect on or after 1 Jul this year, with a review on 31 Mar 2020.

What caught us by surprise was the decision to implement the hike in GST from 7% to 9% only sometime in the period from 2021 to 2025, versus expectations of a near-term implementation. This would lift the overhang on retail REITs.

Maintain OVERWEIGHT on the SG residential sector and NEUTRAL on S-REITs. Our top picks for the former are City Developments [BUY, FV: S$15.30], UOL Ltd [BUY, FV: S$9.70] and CapitaLand [BUY, FV: S$4.26].